Thursday, July 31, 2008

Stuff Versus Money

Stuff Versus Money
People tend to confuse capitalism and consumerism. Capitalism is about money and consumerism is about stuff. In the old days, capitalists made money by making stuff. The trouble was that making stuff cost money--for raw material, labor, machines, and the like. With so many bright MBAs around, it didn’t take long to figure out that you could make even more money by not making stuff.
Among the first to try this was the American Can Company. It had a great recession-proof business, since even the dog food consumed by the poor came in cans. But making cans required tons of metal, big clanky machines and workers to run them. So in the 80’s American Can kicked the cans and went into the money business. It changed its name to Primerica and started peddling insurance, loans, mutual funds and other products that exist only in computer files and on paper printouts.
The monkey see monkey do spirit soon had other companies aping Primerica. Factories faded and financials fulgurated. Manufacturing, which led the nation that led the world, dropped to 11 percent while FIRE (Wall Street talk for finance, insurance and real estate) soared to 30 percent of the economy. Let other countries make stuff, we’ll make money.
The change from palpables to pelf robbed millions of Americans of decently-paid manufacturing jobs. That meant they could no longer afford to buy stuff. Even money capitalism couldn’t exist if people didn’t consume. So the problem was how to get the broke to buy. The answer was credit.
If you’re my age, you’ll remember when it used to be scarce. To qualify for a mortgage or a car note, you had to be a solvent citizen with a rich uncle as co-signer. Then easy credit kicked in and banks started issuing credit cards to house pets and peddling mortgages to picaroons.
Limitless credit was a splendid solution--for a while. Soon, not only consumers but businesses and government were engorged with debt. That debt earned not just interest but fat fees of all kinds. What’s more all those IOUs could be sliced, diced and packaged in countless ways for resale, re-resale, re-re-resale, ad infinitum.
By “countless” I mean that the debt mountain has become so high that there is no way of toting it up and sorting it out. Imagine accidentally adding salt to a sugar bowl and then trying to separate the grains.
But debt is not our main economic problem. In the past, all such awful arrears have been written down and forgotten in one way or another. Borrowers have simply renounced their owings. Governments have inflated themselves out of hock by debasing their currency to where it takes a billion bucks to buy a stick of gum.
The serious issue is that Americans are now both broke and out of credit. And since ours is a consumer society, a dearth of customers means slow death. The reasonable solution is to start making stuff again, thus providing people with wages to buy stuff. A good place to begin would be producing a new energy system and rebuilding our failing infrastructure.
But our capitalists are not likely to make such investments at home as long as they can make more money away. The other 96 percent of the world is now a better bet than the good old U.S.A. We should have stayed with stuff. Too late now. It looks like hard times will be around for awhile.